The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation

By Lawrence J. White | Go to book overview

assets into rough equality with its liabilities." 38 Again, the insurer faces an approximate cost of $32. Only a reneging on the guarantee to depositors would allow the insurer to avoid incurring these costs.

It clearly behooves the insurer to protect itself and prevent thrifts from reaching insolvency. Unfortunately, as the following chapters demonstrate, the FSLIC did not adequately protect itself in the 1980s, and it allowed hundreds of thrifts to reach lesser and greater approximations to Table 3-4.


Notes
1
One such effort, for commercial banks only, can be found in Bloch ( 1985, p. 164); see also Figure 9-1.
2
See Calomiris ( 1989a; 1989b).
3
In practice, though, much economic regulation has had the effect, and often the intention, of protecting otherwise competitive industries from the effects of competition; see, generally, Stigler ( 1971), Posner ( 1974), Peltzman ( 1976), Weiss and Klass ( 1981), and Weiss and Klass ( 1986).
4
This is a narrower form of a broader category of regulation that is frequently described as "social regulation" or "health-safety-environment regulation"; see White ( 1981).
5
Prior to the late 1980s some state-chartered thrifts were covered by state- sponsored insurance funds. A number of these insurance funds failed-- the failures of the Ohio and Maryland funds in 1985 probably gained the most notoriety -- and all thrifts today are federally insured; see Kane ( 1989).
6
Of the BIF-insured thrifts (the "mutual savings banks"), more than 90 percent by number are state-chartered, and they account for more than 80 percent of the MSBs' assets.
7
This is true, for example, for California and Texas.
8
This is true, for example, for New York.
9
The FIRREA greatly restricted state powers in this respect, causing much greater conformity with the limitations on federally chartered thrifts.
10
See Note 9.
11
The authorizing statute was the Home Owners' Loan Act of 1933 and its subsequent amendments.
12
Other grounds include the failure of a thrift to meet liquidity demands made upon it or its violation of a cease-and-desist order. The FIRREA provided additional grounds; see Chapter 11.

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